As an asset, it’s world renowned, and favoured for it’s lucrative mix of long-term stability and consistently high return on investment.
However, that’s a very simplistic view of a potential portfolio acquisition.
There’s a substantial variation between the performance of some UK properties to others.
In fact, potential investors have a bewildering array of options. There are just sort of 25 million residential dwellings in the UK.
Which do you invest in? Where do you invest? The answer to these questions are even more unclear if you are situated outside the country as an overseas investor with no first hand knowledge of the local markets.
Here, we’ll outline some of the highest performing markets in the UK and align them to common investor needs.
Where to invest in UK property: London – the matured safehaven
London’s reputation as an international hub of investment is well established and it’s fair to assume every first-time investor considering acquiring in the UK will assess the London market.
- Average Property Price: £704,000
- Projected 5-year capital growth: 15%
- Average Yields: 2-3%
According to ONS data, it was only 20 years ago when the average London property cost just £200,000.
The average price now? Just over £700,000 – comprising an average of £530,000 for a flat or apartment and £730,000 for a house.
It’s past record of capital appreciation that’s unmatched. Even modest investments of £200,000 made around the 2007/8 financial crisis in areas such as Kings Cross are already worth almost double that. Of course, the statement locations such as Kensington and Chelsea tend to be in a market of their own with the average asking price of a two-bed apartment in Chelsea reaching almost £1.5 million – but with great investment potential.
The issues many future investors face are linked to these staggering past performance. With such a high floor, yields are low and future capital growth will need to slow.
Despite having the UK’s highest rents, the high property asking prices mean London averages just 2-4% yields.
And future capital growth? It’s no longer meteoric, just a more sustainable 2-4% a year.
That said, London will always be sought-after and there are still hotbeds of emergent investment activity and considerable fluctuations for investors to find.
Where to buy in London
London is big. And that can represent an opportunity to outperform the citywide average for the investor.
Everywhere in London is densely populated and the tenant market is strong. East London areas such as Barking & Dagenham with slightly lower average asking prices (£585,000) represent good value in the capital.
Let’s take a look at 3 strong performing borough:
Kensington and Chelsea
As the pandemic subsides and London life returns to normal, the jewel in London’s property crown looks set to gleam again.
One recent market report noted demand for prime central London properties had increased almost 50% pre-pandemic levels in the last quarter– almost 10 times the increase in demand for suburban properties.
Furthermore, overseas demand is returning and that will firmly be centred on the Kensington & Chelsea submarket. It is this overseas interest that has instigated truly special capital appreciation over the past 20 years. Back in 2000 the average property price in Kensington & Chelsea was around £500,000. Now, it’s £2.5 million. Similarly, properties in the affluent and metropolitan borough demand some of the highest rents in the UK, averaging around £1,500 a week – almost 100% above the average rental figure in London.
Battersea is an emergent district of the south London borough of Wandsworth, extending along the south bank of the River Thames.
It’s one of the most affordable areas for investors searching to acquire London properties and looks set to experience strong performance in 2022 and the coming years.
Recent market reports have noted that Battersea is among a few very in-demand locations across the capital. Registrations so far this year have increased by 100% on the start of 2021 and over 200% since the start of 2019.
Conversely, supply has contracted. At the same time the number of properties listed for sale has dropped by 40% year on year.
Average prices in the district currently stand at £780,000 and a Battersea acquisition in early 2022 could see very strong short to mid-term performance.
Post pandemic, there’s a suggestion that some areas in London are undervalued. Covent Garden may be one of them.
Average prices in the West End district situated in both the boroughs of Camden and Westminster have softened over the past 24 months, and investors can pick up an asset for an average price of around £1 million.
Rents in Covent Garden have recorded a half-year rise of 3% before the onset of 2022, and the district is also at the heart of London’s downsizer movement.
The downsizer market is a nuance of post-Covid life in the UK. During the height of homeschooling and work from home large, multibed properties were in demand and enjoyed a price boom. Now that will self correct and downsizer properties – smaller flats and apartments – will enjoy more demand.
As an area in London that enjoys a very high quality of life Covent Garden is very popular among these pent-up downsizers as well as international students.
Where to invest in UK property: Manchester and Birmingham – the key regional cities
If you’re not going to be looking at the London market, or want to diversify away from the capital, you need to be considering two other cities.
Over the past 10 years, the key regional hubs of Manchester and Birmingham have attracted substantial investment. Real estate assets in these heavily gentrified cities have already recorded UK-best performance, and many analysts believe it is only the start of the upward trajectory.
- Average Property Price: £215,000
- Projected 5-year capital growth: 17%
- Average Yields: 6-7%
From a capital perspective, no other city in the UK has outperformed Birmingham over the past 12 months. Investors saw real estate asset value rise by 12% in 2021.
Given the demand for property within the city centre (and the West Midland region in general) forecasts for future growth remain buoyant with investors and residents alike keen to buy.
Only London has recorded a faster rate of population growth than Birmingham over the last decade, and it’s estimated 10,000 more people want to live in the city every single year.
Birmingham has strong transport links with both London and Manchester, and is favoured by young professionals and recent graduates. This means that despite the clamour for assets driving capital appreciation, a thriving rental market and strong yields may produce the majority of investor ROI.
If you purchased in Birmingham city centre right now, you could expect annual yields of around 7%, but it is predicted that over the next 5 years, nowhere else in the UK will match Birmingham’s level of yield growth.
Where to buy in Birmingham
Two-bed apartments are favoured among the affluent Birmingham tenant market. Popular city centre locations such as the B4 look postcode will be in demand both prior to and after the 2022 Commonwealth Games.
- Average Property Price: £209,000
- Projected 5-year capital growth: 21%
- Average Rental Yield: 6-7%
Manchester’s property market is no longer a secret.
It’s a worldwide destination of overseas investment and has outperformed every other UK city over the past 5 years. Despite this it is still affordable to individual investors.
High yields, the result of lower per sq m prices than most other international markets and an explosion in rental prices driven by huge tenant demand, have been at the heart of the past performance.
Much of the tenant demand comes from Manchester’s unique combination of relaxed, high quality lifestyle, and economic progression. Over the past 2 decades there’s been an 84% growth in employment – especially around the tech, media and finance sectors.
As the Manchester city centre economy matures, more multinationals are relocating to the hub, in turn drawing more and more graduates and renters to the area. Yields are set to rise inline with maturing rents in the coming period.
Of course, any revenue-generating real estate asset also accumulates capital value as investors (as well as residents) are keen to buy. Manchester real estate typifies that, consistently being named as one of the UK’s house price growth capitals over the past 5 years.
Where to buy in Manchester
The Manchester rental market is both diverse and mature, ranging from premium, high-spec build to rent that can attract very high rents to thousands of student HMO buy-to-let properties. Check out our Manchester page for more information on the best locations.